In the big public push for his 2014-2015
budget proposal, Republican Gov. John Kasich has often sounded
progressive. If his platitudes are to be believed, the budget will make
the tax system fairer for everyone, help out the state’s poorest schools
and provide health care to hundreds of thousands of struggling Ohioans.

But critics are now voicing
disappointment. Deeper analyses of Kasich’s budget found that the
governor was likely off with some of his claims and putting a
progressive spin on a budget that might raise taxes on the poor and
gives more funding to school districts that are already considered
well-off.

Critics see Kasich’s progressive claims
as short-term politicking in preparation for the 2014 gubernatorial
election. With his new budget, Kasich is deferring attention from past
budget cuts and putting the spotlight on ideas that seem universally
good: fewer taxes, more education funding and health care coverage for
many. It’s a political play that’s at the heart of the proposal, and
it’s already seeing some success as media outlets highlight Kasich’s
funding increases with little historical context.

But Kasich’s proposal is facing critics
on all sides. Independent research groups have found numerous flaws with
the tax plan. Schools and state officials have voiced concerns since
Kasich’s administration revealed its own funding numbers. Kasich’s
fellow Republicans heavily criticized the Medicaid expansion — the only
major policy Ohio Democrats have endorsed.

The political maneuvering and shouts of
criticism can be deafening, but the truth behind the budget will play an
important role in Ohio’s future. If it passes, Kasich’s plan will
establish the state’s blueprint for the next two fiscal years — granting
tremendous importance to just one piece of legislation.

Taxing the poor

Flat approaches to the tax system often
favor the wealthy, but they seem innocent enough that Republicans can
tout “across-the-board” or “flat tax” proposals without public scorn.

It’s a fact the governor might have
relied on when rolling out his tax plan. Kasich promised Ohioans a 20
percent across-the-board income tax cut, pairing the cut with a sales
tax cut from 5.5 percent to 5 percent in order to give benefits to
poorer Ohioans that don’t have to pay income taxes. Small business
income taxes are also reduced by 50 percent.

To make up for lost revenue, Kasich’s
plan suggests imposing a severance tax on oil-and-gas businesses and
expanding the sales tax to apply to a variety of items, including cable
TV services, coin-operated video games and admission to sports events
and amusement parks.

The oil-and-gas severance tax isn’t
getting much criticism, but the rest of the plan is getting a close look
from critics who are fearful it may hurt Ohio’s poor and middle class.

Policy Matters Ohio, a left-leaning
policy research group, used a longstanding tax model from the Institute
on Taxation and Economic Policy, another research group, to measure the
impact of Kasich’s tax plan. The resulting report found the poor and
middle class would pay more under Kasich’s plan, while the wealthiest
Ohioans would pay much less.

The poorest Ohioans would see a tax
increase of $63 per year, according to the report. On average, the
bottom 20 percent of the income ladder would have their income taxes
reduced by $8, but the expanded sales tax would actually increase their
average sales tax burden by $71.

The report found the middle 20 percent
fares slightly better. Under the budget proposal, they would get a $157
income tax cut on average, but their sales tax burden would go up by
$165 — meaning they’d end up paying $8 more in taxes.

Meanwhile, the top 1 percent would get
the most out of Kasich’s tax plan, according to the report. The sales
tax expansion would bring up their average share by $781, but that would
be overwhelmingly outweighed by an $11,150 income tax cut, effectively
reducing the top 1 percent’s tax burden by $10,369.

Even the small business income tax cut
will mostly benefit wealthier Ohioans. The Policy Matters report found
that 53 percent of the revenue lost from the business income tax cut
would go to the top 1 percent. The middle 20 percent would only get 4
percent of the business tax cut, and the poorest 20 percent would get
nothing.

Even though the overall results are
regressive, Zach Schiller, research director at Policy Matters, says his
organization still supports broadening the sales tax.

“You need to have an adequate tax system, too,” he says. “You’re not just concerned about fairness.”

While sales taxes are generally
regressive, Schiller argues the raised revenues can help fund programs
that outweigh an increased tax burden for the lower and middle classes,
including social welfare, college accessibility and infrastructure
programs.

Schiller says having too many broad
exemptions leads to an unfair system that brings up tax rates: “To not
tax (so many) services over the long term is a policy that will result
in the slow erosion of the sales tax. The only way to avoid that would
be to increase the rate, which is, of course, what’s happened.”
According to Schiller, it’s better to keep the rate lower and expand the
sales tax to apply to all non-essential goods and services.

Gary Gudmundson, communications director at the Ohio Department of Taxation, told CityBeat
that the administration’s unreleased tax numbers will “speak for
themselves,” but he did not confirm or deny whether Kasich’s tax plan
benefits the wealthy over the poor and middle class. The
administration’s numbers were not released before press time.

Kasich claims his tax plan is all about
spurring Ohio’s economic recovery and job creation, but prioritizing the
wealthy with a regressive tax plan likely goes against that goal. A
previous analysis from the Congressional Budget Office (CBO), which
measures the budgetary and economic impact of federal policy, found
letting tax cuts expire on the wealthy would barely dent the economy.
The same report also found the economy greatly benefits from tax and
social welfare programs that disproportionately benefit the lower and
middle classes.

Another report from the Congressional
Research Service (CRS) similarly concluded that tax hikes on the rich
would have a negligible economic impact. The findings made national
Republicans so angry that they pressured CRS to pull the report. CRS
later re-released the study — except this time it had nicer language to
appease Republicans.

Schiller says Kasich’s proposed business
income tax cuts also won’t create jobs: “Large numbers of business
owners who don’t employ anyone are going to get the benefit of this, and
the reduction in tax that most of them will pay isn’t enough to hire
anybody, anyway.”

Schiller’s claims are backed by some
economic research. A 2011 study from University of Chicago researchers
Erik Hurst and Benjamin Pugsley found many small businesses “have little
desire to grow big or to innovate in any observable way.” Instead, many
small businesses are led by skilled craftsmen, lawyers, real estate
agents, doctors, small shopkeepers and restaurateurs who are content
with remaining small.

Schiller says Ohio’s history also proves
across-the-board income tax cuts aren’t the job-creating machine
Republicans play them up to be.

He points to 2005, when Ohio, under the
charge of Republican Bob Taft at the time, cut the state’s income tax by
21 percent. Following the cuts, Ohio’s employment situation remained
relatively stagnant, even as U.S. unemployment modestly decreased.

“We saw this movie before,” Schiller says. “Did it create a renaissance of small businesses in Ohio? Look around you.”

History of defunding

At the forefront of Kasich’s progressive
claims was his education reform plan, which the governor and staff
members insisted would level the playing field for Ohio’s educators.

Without any context, it’s hard to dispute
the governor’s claim that he’s increasing school funding. It’s
absolutely true Kasich’s plan will not cut funding to Ohio schools.

But since Kasich took office, his
administration has reduced the amount of funding for many Ohio schools.
In the tentative numbers released for the 2014-2015 budget, Cincinnati
Public Schools (CPS) is getting $8.8 million in the 2014 fiscal year — a
6.8 percent increase from the year before. But that’s not enough to
make up for the $39 million in funding the school district lost in the
2012-2013 budget.

Of that money, $11.5 million was lost
when federal stimulus funds expired between 2011 and 2012. The other
cuts are from reductions in the state budget — mainly the phase-out of
the tangible personal property reimbursements, which the governor’s
office says disproportionately benefited some school districts,
including CPS.

But CPS isn’t alone. Statewide, Kasich’s
budget cut $1.8 billion in education, according to the website Cuts Hurt
Ohio. In Hamilton County, the loss in education funding came to $117
million.

The cuts were so extensive that local
communities felt compelled to react with school levies. A report from
Innovation Ohio, a left-leaning policy research group, found voters
approved 40 percent of school levies placed on ballots between May 2011
and November 2012, which added up to $487 million. These levies are
essentially direct income and property tax increases for local
communities — meaning cities and townships are now making up for state
budget cuts with their own dollars.

Kasich’s 2014-2015 budget proposal does
little to make up for the $1.8 billion in cuts. Originally, the
administration said it was adding $1.2 billion to school funding with
the new budget. But the tentative numbers show an increase of only $564
million, with 60 percent of districts not getting any increased funding.

The governor’s office has repeatedly said
the original budget cuts were necessary to make up for an $8 billion
deficit they inherited from the previous administration. The state
government is required by law to balance its budget.

Beyond the broader context, critics are
now claiming Kasich’s new school funding formula is not as progressive
as the governor let on — meaning the formula will do little to further
support poor school districts over wealthy school districts.

During legislative hearings, Republican
State Rep. Ryan Smith pointed out Kasich’s plan would give more money to
well-off suburban school districts, but it wouldn’t do more for poor
districts in the “heart of Appalachia.” Smith contrasted the affluent
Olentangy Local Schools to the Appalachian districts he represents:
“They have just a few things: German 1, 2 and 3; Jewelry 1; Ceramics 1;
Sculpture 1; Stage Craft 1; Concert Orchestra — these are things that
children of Appalachia don’t get exposed to.”

In comparison, the superintendent at
Symmes Valley Local Schools, an Appalachian school district, had to lay
off the board secretary, transportation director and curriculum director
and consolidate their roles into his own job to open up some education
money in the cash-strapped district, according to Smith.

Yet Olentangy is getting a 330-percent
increase in funding — apparently to support increased enrollment — while
Symmes is getting nothing.

The comparison between Olentangy and
Symmes becomes even grimmer when looking at “guarantee funds” — money
that comes in addition to what the funding formula dictates for school
districts. When announcing his education reform plan, Kasich said he
eventually wants to do away with guarantee funds because they create a
lopsided funding system. But eliminating guarantee funds would cut money
going to Symmes by $798,179 — about 16 percent of total funds going to
the district — and leave Olentangy untouched.

Stephen Dyer, a former Democratic state
representative and an education policy fellow at Innovation Ohio, argues
the comparison between Olentangy and Symmes is consistent throughout
the state budget. When looking at property wealth on a
district-by-district basis, Dyer found the wealthiest one-third of
districts are getting nearly $400 more per pupil. In comparison, the
middle one-third are getting about $250 more per pupil, and the poorest
one-third are getting nearly $150 more per pupil.

The funding formula uses the three-year
average valuation per pupil — basically, property value in a district
divided by the amount of students — but Dyer argues this measurement is
fundamentally flawed. By trying to fit every region, regardless of
differences, into one measurement, the state is inherently building
discrepancies like the ones seen between Olentangy and Symmes, says
Dyer.

The problem is particularly exemplified
by how much a school district can raise locally, according to Dyer. When
looking at per pupil valuation, Dyer found the difference between
Olentangy and Noble Local Schools, another poor Appalachian district,
was small: $191,580 for Olentangy and $164,229 for Noble. When looking
at property wealth through how much each district can raise with one
mill of property taxes, he found the difference was enormous: $3,174,460
for Olentangy and $125,941 for Noble.

This massive discrepancy means Noble has
to raise its property values by 25 times to match what Olentangy can
raise on one mill of property taxes. So if Olentangy needs to raise $3
million in school levies, it would need to raise slightly less than one
mill — a slight property tax increase. If Noble wanted to raise $3
million, it would have to pass 24 mills — a considerably larger tax
increase. “Which one do you think is more likely to pass?” asks Dyer.

Dyer uses a Robin Hood analogy to
describe the new formula: “They were telling everybody they were Robin
Hood. They were going to go in, steal from the rich, and give to the
poor. But it turns out they were Daffy Duck’s Robin Hood that couldn’t
do it, not Errol Flynn’s Robin Hood, who was really good at it.”

In their defense, the Kasich
administration typically argues that the school funding formula
continues the trend of giving poorer schools more funding per pupil. In
public testimony, Barbara Mattei-Smith, Kasich’s assistant education
policy adviser, emphasized that Kasich’s plan would give Ohio’s
lowest-wealth school districts 400 percent more funding than Ohio’s
highest-wealth districts.

But critics argue that’s always been the
case for Ohio’s school funding systems. The question for critics like
Dyer is whether the system is being tilted in favor of the poor or
wealthy, and the data so far implicates the wealthy are getting more.

The formula has also sparked bitter
reactions from superintendents around the state. Arnol Elam, the
superintendent of Franklin City Schools in Warren County, wrote a letter
to parents when he found out his school district would not get more
funding under the governor’s plan.

“By every measure, we are the poorest
district in Warren County,” wrote Elam. According to Elam, 44.7 percent
Franklin’s students are in poverty — a strong contrast to Mason City
Schools’ 6.3 percent. His district’s median household income is $29,900 —
much lower than Springboro Community City Schools’ $61,271. Franklin
City also has the highest percentage of students with a disability at
16.1 percent.

But Franklin City is getting no
additional funding, while Mason, Springboro and Kings — Warren County’s
wealthiest districts — are getting more.

Expanding Medicaid

For all the budget proposal’s perceived
flaws, Ohio Democrats have found one policy they can stand behind: the
Medicaid expansion. The Republican governor’s support of the expansion
adds an unusual twist in the national argument over health care reform,
which has been mostly split down partisan lines.

The Medicaid expansion is part of
President Barack Obama’s Affordable Care Act — popularly dubbed
“Obamacare.” Originally, every state in the country was going to be
required to expand Medicaid in a way that includes anyone at or below
138 percent of the federal poverty level. But the same Supreme Court
ruling that upheld Obamacare also said the federal government was being
too coercive with funding by requiring states to expand their Medicaid
programs, which already take up a massive portion of state budgets.

The court’s decision made the Medicaid
expansion optional for states. Until Kasich’s budget blueprint was
unveiled, it was expected that the governor — a vocal opponent of
Obamacare — would refuse to expand the Medicaid program, but the
administration agreed to the expansion and claimed it makes financial
sense for the state.

Kasich is relying on the federal
government’s financial incentives to expand Medicaid. As part of
Obamacare, the federal government is carrying the full cost of the
expansion for the first three years. After that, the federal
government’s share is brought down to 95 percent and ultimately phased
down to 90 percent. If the federal government reneges on its promise to
pay for a bulk of the share, Kasich’s budget has a trigger to wind down
the expansion.

The budget’s projections echo preliminary
findings from the Health Policy Institute of Ohio, a nonpartisan health
policy group. In a study released Jan. 15 and revised Jan. 18, the
Health Policy Institute found expanding Medicaid in Ohio would generate
$1.4 billion in the next decade by shifting costs from the state to the
federal government and generating more revenue through economic
security. After 2022, the state would end up breaking even. The study
also found that the expansion would give health coverage to 456,000
Ohioans by 2022. In other words, the study found the Medicaid expansion
would allow Ohio to insure nearly half a million people at no cost to
the state. (The study is slightly outdated because it relies on old
sales tax rates for its revenue calculations, but the rest remains
true.)

If studies on other states’ expansions
are anything to go by, Ohio’s Medicaid expansion would also be good for
statewide health results. A 2012 study from Harvard researchers found
2001 and 2002 Medicaid expansions in Arizona, New York and Maine greatly
benefited the states’ new Medicaid recipients. Findings showed
decreased mortality rates, better self-reported health, better access to
health care and improved coverage overall — particularly for older
adults, minorities and residents of poor counties. Still, the
researchers cautioned the results might not apply to every state.

Kasich’s support for the Medicaid
expansion has created critics out of his fellow Republicans. Following
the expansion’s announcement, State Treasurer Josh Mandel sent a letter
to Ohio legislators urging them to not expand Medicaid. In the letter,
Mandel wrote about concerns regarding the long-term feasibility of the
expansion: “There is no free money. While expanding Medicaid may direct
more federal dollars to Ohio in the next few years, in the long term
Ohioans will have to repay the debt that is funding federal government
spending. … If Ohio’s leaders take the bait today, I fear that
generations of Ohio taxpayers will be on the hook for the long-term
costs of expanding Medicaid.”

During budget hearings, members of the
House Finance and Appropriations Committee reiterated many of Mandel’s
points. Some legislators echoed concerns that the trigger won’t be
enough if the federal government backs down on its promise to
financially support the Medicaid expansion.

Greg Moody, director of the Governor’s
Office of Health Transformation, responded at the hearings by arguing
the trigger would be adequate. He said the trigger would immediately
halt and retract the Medicaid expansion, providing a “clean slate” for
lawmakers. Moody explained lawmakers could then decide whether the
expansion can continue with purely state funds or reduced federal funds.
“Is it ideal?” he added. “It is not ideal. There’s not much about this
that’s ideal.”

The office of Gov. John Kasich did not respond to CityBeat’s
repeated requests for comments regarding the Medicaid expansion and the
governor’s tax and education plans. Multiple interviews were originally
scheduled, but they all fell through.

A bigger plan

Based on his statements, Kasich set out
to make his budget the moderate miracle that could win him re-election.
But among the three big items touted in the budget, only the Medicaid
expansion really speaks to Democrats. The other proposals have sparked
bitter reactions and concerns from critics who have opposed Kasich’s
re-election from the start.

Still, the three policies aren’t
everything in Kasich’s budget. It also includes an Ohio Turnpike plan
that leverages funds from the turnpike for a statewide infrastructure
program. There’s also a proposal to privatize food services in state
prisons. The budget blueprint makes some moves to increase funding to
counties and universities after years of flat funding and cuts. As
reporters and state officials comb through the massive plan, more little
details will surely come to light.